Delaware
|
43-1857213
|
(State or other jurisdiction
of incorporation or organization)
|
(I.R.S.
Employer Identification
Number)
|
PART
I. FINANCIAL INFORMATION
|
Page
|
Item
1.Financial Statements - Charter Communications, Inc. and
Subsidiaries
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2008
|
|
and
December 31, 2007
|
4
|
Condensed
Consolidated Statements of Operations for the three and
nine
|
|
months
ended September 30, 2008 and 2007
|
5
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
nine
months ended September 30, 2008 and 2007
|
6
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
Item
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
|
21
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
32
|
Item
4. Controls and Procedures
|
34
|
PART
II. OTHER INFORMATION
|
|
Item
1. Legal Proceedings
|
35
|
Item
1A. Risk Factors
|
35
|
Item
5. Other Information
|
39
|
Item
6. Exhibits
|
39
|
SIGNATURES
|
S-1
|
EXHIBIT
INDEX
|
E-1
|
|
·
|
the
availability, in general, of funds to meet interest payment obligations
under our debt and to fund our operations and necessary capital
expenditures, either through cash flows from operating activities, further
borrowings or other sources and, in particular, our ability to fund debt
obligations (by dividend, investment or otherwise) to the applicable
obligor of such debt;
|
|
·
|
our
ability to comply with all covenants in our indentures and credit
facilities, any violation of which, if not cured in a timely manner, could
trigger a default of our other obligations under cross-default
provisions;
|
|
·
|
our
ability to repay debt prior to or when it becomes due and/or successfully
access the capital or credit markets to refinance that debt through new
issuances, exchange offers or otherwise, including restructuring our
balance sheet and leverage position, especially given recent volatility
and disruption in the capital and credit markets;
|
·
|
the
impact of competition from other distributors, including incumbent
telephone companies, direct broadcast satellite operators, wireless
broadband providers, and digital subscriber line (“DSL”)
providers;
|
|
·
|
difficulties
in growing, further introducing, and operating our telephone services,
while adequately meeting customer expectations for the reliability of
voice services;
|
|
·
|
our
ability to adequately meet demand for installations and customer
service;
|
|
·
|
our
ability to sustain and grow revenues and cash flows from operating
activities by offering video, high-speed Internet, telephone and other
services, and to maintain and grow our customer base, particularly in the
face of increasingly aggressive
competition;
|
|
·
|
our
ability to obtain programming at reasonable prices or to adequately raise
prices to offset the effects of higher programming
costs;
|
|
·
|
general
business conditions, economic uncertainty or downturn, including the
recent volatility and disruption in the capital and credit markets and the
significant downturn in the housing sector and overall economy;
and
|
|
·
|
the
effects of governmental regulation on our
business.
|
Item
1.
|
Financial
Statements.
|
September
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 569 | $ | 75 | ||||
Accounts
receivable, less allowance for doubtful accounts of
|
||||||||
$20
and $18, respectively
|
246 | 225 | ||||||
Prepaid
expenses and other current assets
|
45 | 36 | ||||||
Total
current assets
|
860 | 336 | ||||||
INVESTMENT
IN CABLE PROPERTIES:
|
||||||||
Property,
plant and equipment, net of accumulated depreciation
|
5,062 | 5,103 | ||||||
Franchises,
net
|
8,933 | 8,942 | ||||||
Total
investment in cable properties, net
|
13,995 | 14,045 | ||||||
OTHER
NONCURRENT ASSETS
|
302 | 285 | ||||||
Total
assets
|
$ | 15,157 | $ | 14,666 | ||||
LIABILITIES
AND SHAREHOLDERS’ DEFICIT
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,465 | $ | 1,332 | ||||
Total
current liabilities
|
1,465 | 1,332 | ||||||
LONG-TERM
DEBT
|
21,031 | 19,908 | ||||||
NOTE
PAYABLE – RELATED PARTY
|
72 | 65 | ||||||
DEFERRED
MANAGEMENT FEES – RELATED PARTY
|
14 | 14 | ||||||
OTHER
LONG-TERM LIABILITIES
|
1,205 | 1,035 | ||||||
MINORITY
INTEREST
|
204 | 199 | ||||||
PREFERRED
STOCK – REDEEMABLE; $.001 par value; 1 million
|
||||||||
shares
authorized; 0 and 36,713 shares issued and outstanding,
respectively
|
-- | 5 | ||||||
SHAREHOLDERS’
DEFICIT:
|
||||||||
Class
A Common stock; $.001 par value; 10.5 billion shares
authorized;
|
||||||||
412,140,525
and 398,226,468 shares issued and outstanding,
respectively
|
-- | -- | ||||||
Class
B Common stock; $.001 par value; 4.5 billion
|
||||||||
shares
authorized; 50,000 shares issued and outstanding
|
-- | -- | ||||||
Preferred
stock; $.001 par value; 250 million shares
|
||||||||
authorized;
no non-redeemable shares issued and outstanding
|
-- | -- | ||||||
Additional
paid-in capital
|
5,342 | 5,327 | ||||||
Accumulated
deficit
|
(14,052 | ) | (13,096 | ) | ||||
Accumulated
other comprehensive loss
|
(124 | ) | (123 | ) | ||||
Total
shareholders’ deficit
|
(8,834 | ) | (7,892 | ) | ||||
Total
liabilities and shareholders’ deficit
|
$ | 15,157 | $ | 14,666 |
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
REVENUES
|
$ | 1,636 | $ | 1,525 | $ | 4,823 | $ | 4,449 | ||||||||
COSTS
AND EXPENSES:
|
||||||||||||||||
Operating
(excluding depreciation and amortization)
|
710 | 679 | 2,089 | 1,957 | ||||||||||||
Selling,
general and administrative
|
371 | 341 | 1,059 | 961 | ||||||||||||
Depreciation
and amortization
|
332 | 334 | 981 | 999 | ||||||||||||
Asset
impairment charges
|
-- | 56 | -- | 56 | ||||||||||||
Other
operating expenses, net
|
15 | 8 | 51 | 13 | ||||||||||||
1,428 | 1,418 | 4,180 | 3,986 | |||||||||||||
Income
from operations
|
208 | 107 | 643 | 463 | ||||||||||||
OTHER
INCOME (EXPENSES):
|
||||||||||||||||
Interest
expense, net
|
(478 | ) | (459 | ) | (1,417 | ) | (1,385 | ) | ||||||||
Change
in value of derivatives
|
10 | (14 | ) | (1 | ) | (18 | ) | |||||||||
Other
expense, net
|
(5 | ) | -- | (7 | ) | (39 | ) | |||||||||
(473 | ) | (473 | ) | (1,425 | ) | (1,442 | ) | |||||||||
Loss
before income taxes
|
(265 | ) | (366 | ) | (782 | ) | (979 | ) | ||||||||
INCOME
TAX EXPENSE
|
(57 | ) | (41 | ) | (174 | ) | (169 | ) | ||||||||
Net
loss
|
$ | (322 | ) | $ | (407 | ) | $ | (956 | ) | $ | (1,148 | ) | ||||
LOSS
PER COMMON SHARE:
|
$ | (0.86 | ) | $ | (1.10 | ) | $ | (2.57 | ) | $ | (3.12 | ) | ||||
Weighted
average common shares outstanding, basic and diluted
|
374,145,243 | 369,239,742 | 371,968,952 | 367,671,479 |
Nine
Months Ended September 30,
|
||||||||
2008
|
2007
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (956 | ) | $ | (1,148 | ) | ||
Adjustments
to reconcile net loss to net cash flows from operating
activities:
|
||||||||
Depreciation
and amortization
|
981 | 999 | ||||||
Asset
impairment charges
|
-- | 56 | ||||||
Noncash
interest expense
|
43 | 31 | ||||||
Change
in value of derivatives
|
1 | 18 | ||||||
Deferred
income taxes
|
169 | 161 | ||||||
Other,
net
|
39 | 49 | ||||||
Changes
in operating assets and liabilities, net of effects from
dispositions:
|
||||||||
Accounts
receivable
|
(21 | ) | (33 | ) | ||||
Prepaid
expenses and other assets
|
(9 | ) | 21 | |||||
Accounts
payable, accrued expenses and other
|
163 | 173 | ||||||
Net
cash flows from operating activities
|
410 | 327 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property, plant and equipment
|
(938 | ) | (890 | ) | ||||
Change
in accrued expenses related to capital expenditures
|
(41 | ) | (51 | ) | ||||
Other,
net
|
(1 | ) | 6 | |||||
Net
cash flows from investing activities
|
(980 | ) | (935 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Borrowings
of long-term debt
|
2,355 | 7,472 | ||||||
Repayments
of long-term debt
|
(1,238 | ) | (6,841 | ) | ||||
Payments
for debt issuance costs
|
(42 | ) | (33 | ) | ||||
Other,
net
|
(11 | ) | 9 | |||||
Net
cash flows from financing activities
|
1,064 | 607 | ||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
494 | (1 | ) | |||||
CASH
AND CASH EQUIVALENTS, beginning of period
|
75 | 60 | ||||||
CASH
AND CASH EQUIVALENTS, end of period
|
$ | 569 | $ | 59 | ||||
CASH
PAID FOR INTEREST
|
$ | 1,241 | $ | 1,230 | ||||
NONCASH
TRANSACTIONS:
|
||||||||
Cumulative
adjustment to accumulated deficit for the adoption of FIN
48
|
$ | -- | $ | 56 |
Organization
and Basis of Presentation
|
·
|
the
sum of its debts, including contingent liabilities, was greater than the
fair saleable value of all its
assets;
|
·
|
the
present fair saleable value of its assets was less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature;
or
|
·
|
it
could not pay its debts as they became
due.
|
September
30, 2008
|
December 31,
2007
|
|||||||||||||||||||||||
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||||||||||||||
Indefinite-lived
intangible assets:
|
||||||||||||||||||||||||
Franchises
with indefinite lives
|
$ | 8,927 | $ | -- | $ | 8,927 | $ | 8,929 | $ | -- | $ | 8,929 | ||||||||||||
Goodwill
|
68 | -- | 68 | 67 | -- | 67 | ||||||||||||||||||
$ | 8,995 | $ | -- | $ | 8,995 | $ | 8,996 | $ | -- | $ | 8,996 | |||||||||||||
Finite-lived
intangible assets:
|
||||||||||||||||||||||||
Franchises
with finite lives
|
$ | 15 | $ | 9 | $ | 6 | $ | 23 | $ | 10 | $ | 13 |
September
30,
2008
|
December 31,
2007
|
|||||||
Accounts
payable – trade
|
$ | 106 | $ | 127 | ||||
Accrued
capital expenditures
|
54 | 95 | ||||||
Accrued
expenses:
|
||||||||
Interest
|
545 | 418 | ||||||
Programming
costs
|
292 | 273 | ||||||
Compensation
|
122 | 116 | ||||||
Franchise-related
fees
|
55 | 66 | ||||||
Other
|
291 | 237 | ||||||
$ | 1,465 | $ | 1,332 |
September
30, 2008
|
December
31, 2007
|
|||||||||||||||
Principal
Amount
|
Accreted
Value
|
Principal
Amount
|
Accreted
Value
|
|||||||||||||
Long-Term
Debt
|
||||||||||||||||
Charter
Communications, Inc.:
|
||||||||||||||||
5.875%
convertible senior notes due November 16, 2009
|
$ | 3 | $ | 3 | $ | 49 | $ | 49 | ||||||||
6.50%
convertible senior notes due October 1, 2027
|
|
479 | 367 | 479 | 353 | |||||||||||
Charter
Communications Holdings, LLC:
|
||||||||||||||||
10.000%
senior notes due April 1, 2009
|
76 | 76 | 88 | 88 | ||||||||||||
10.750%
senior notes due October 1, 2009
|
54 | 54 | 63 | 63 | ||||||||||||
9.625%
senior notes due November 15, 2009
|
35 | 35 | 37 | 37 | ||||||||||||
10.250%
senior notes due January 15, 2010
|
9 | 9 | 18 | 18 | ||||||||||||
11.750%
senior discount notes due January 15, 2010
|
13 | 13 | 16 | 16 | ||||||||||||
11.125%
senior notes due January 15, 2011
|
47 | 47 | 47 | 47 | ||||||||||||
13.500%
senior discount notes due January 15, 2011
|
60 | 60 | 60 | 60 | ||||||||||||
9.920%
senior discount notes due April 1, 2011
|
51 | 51 | 51 | 51 | ||||||||||||
10.000%
senior notes due May 15, 2011
|
69 | 69 | 69 | 69 |
11.750%
senior discount notes due May 15, 2011
|
54 | 54 | 54 | 54 | ||||||||||||
12.125%
senior discount notes due January 15, 2012
|
75 | 75 | 75 | 75 | ||||||||||||
CCH
I Holdings, LLC:
|
||||||||||||||||
11.125%
senior notes due January 15, 2014
|
151 | 151 | 151 | 151 | ||||||||||||
13.500%
senior discount notes due January 15, 2014
|
581 | 581 | 581 | 581 | ||||||||||||
9.920%
senior discount notes due April 1, 2014
|
471 | 471 | 471 | 471 | ||||||||||||
10.000%
senior notes due May 15, 2014
|
299 | 299 | 299 | 299 | ||||||||||||
11.750%
senior discount notes due May 15, 2014
|
815 | 815 | 815 | 815 | ||||||||||||
12.125%
senior discount notes due January 15, 2015
|
217 | 217 | 217 | 217 | ||||||||||||
CCH
I, LLC:
|
||||||||||||||||
11.000%
senior notes due October 1, 2015
|
3,987 | 4,075 | 3,987 | 4,083 | ||||||||||||
CCH
II, LLC:
|
||||||||||||||||
10.250%
senior notes due September 15, 2010
|
1,860 | 1,857 | 2,198 | 2,192 | ||||||||||||
10.250%
senior notes due October 1, 2013
|
614 | 597 | 250 | 260 | ||||||||||||
CCO
Holdings, LLC:
|
||||||||||||||||
8
¾% senior notes due November 15, 2013
|
800 | 796 | 800 | 795 | ||||||||||||
Credit
facility
|
350 | 350 | 350 | 350 | ||||||||||||
Charter
Communications Operating, LLC:
|
||||||||||||||||
8.000%
senior second-lien notes due April 30, 2012
|
1,100 | 1,100 | 1,100 | 1,100 | ||||||||||||
8
3/8% senior second-lien notes due April 30, 2014
|
770 | 770 | 770 | 770 | ||||||||||||
10.875%
senior second-lien notes due September 15, 2014
|
546 | 526 | -- | -- | ||||||||||||
Credit
facilities
|
7,513 | 7,513 | 6,844 | 6,844 | ||||||||||||
$ | 21,099 | $ | 21,031 | $ | 19,939 | $ | 19,908 |
·
|
Level
1 – inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
·
|
Level
2 – inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
·
|
Level
3 – inputs to the valuation methodology are unobservable and significant
to the fair value measurement.
|
Fair
Value As of September 30, 2008
|
||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Other
long-term liabilities:
|
||||||||||||||||
Interest
rate derivatives
|
$ | -- | $ | 170 | $ | -- | $ | 170 | ||||||||
Embedded
derivatives
|
-- | -- | 33 | 33 | ||||||||||||
$ | -- | $ | 170 | $ | 33 | $ | 203 |
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Loss
on sale of assets, net
|
$ | 3 | $ | 2 | $ | 7 | $ | 5 | ||||||||
Special
charges, net
|
12 | 6 | 44 | 8 | ||||||||||||
$ | 15 | $ | 8 | $ | 51 | $ | 13 |
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Loss
on extinguishment of debt
|
$ | (4 | ) | $ | -- | $ | -- | $ | (35 | ) | ||||||
Minority
interest
|
(1 | ) | (1 | ) | (5 | ) | (4 | ) | ||||||||
Gain
(loss) on investments
|
-- | 2 | (1 | ) | 1 | |||||||||||
Other,
net
|
-- | (1 | ) | (1 | ) | (1 | ) | |||||||||
$ | (5 | ) | $ | -- | $ | (7 | ) | $ | (39 | ) |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Approximate
as of
|
||||||||
September
30,
|
September
30,
|
|||||||
2008
(a)
|
2007
(a)
|
|||||||
Video
Cable Services:
|
||||||||
Basic
Video:
|
||||||||
Residential
(non-bulk) basic video customers (b)
|
4,860,100 | 5,073,900 | ||||||
Multi-dwelling
(bulk) and commercial unit customers (c)
|
276,000 | 273,900 | ||||||
Total
basic video customers (b)(c)
|
5,136,100 | 5,347,800 | ||||||
Digital
Video:
|
||||||||
Digital
video customers (d)
|
3,118,500 | 2,882,900 | ||||||
Non-Video
Cable Services:
|
||||||||
Residential
high-speed Internet customers (e)
|
2,858,200 | 2,639,200 | ||||||
Telephone
customers (f)
|
1,274,300 | 802,600 |
(a)
|
"Customers"
include all persons our corporate billing records show as receiving
service (regardless of their payment status), except for complimentary
accounts (such as our employees). At September 30, 2008 and
2007, "customers" include approximately 42,100 and 33,800 persons whose
accounts were over 60 days past due in payment, approximately 7,700 and
5,700 persons whose accounts were over 90 days past due in payment, and
approximately 3,800 and 2,100 of which were over 120 days past due in
payment, respectively.
|
(b)
|
"Basic
video customers" include all residential customers who receive video cable
services.
|
(c)
|
Included
within "basic video customers" are those in commercial and multi-dwelling
structures, which are calculated on an equivalent bulk unit ("EBU")
basis. EBU is calculated for a system by dividing the bulk
price charged to accounts in an area by the most prevalent price charged
to non-bulk residential customers in that market for the comparable tier
of service. The EBU method of estimating basic video customers
is consistent with the methodology used in determining costs paid to
programmers and has been used
consistently.
|
(d)
|
"Digital
video customers" include all basic video customers that have one or more
digital set-top boxes or cable cards
deployed.
|
(e)
|
"Residential
high-speed Internet customers" represent those residential customers who
subscribe to our high-speed Internet
service.
|
(f)
|
“Telephone
customers" include all customers receiving telephone
service.
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||||||||||||||||
REVENUES
|
$ | 1,636 | 100 | % | $ | 1,525 | 100 | % | $ | 4,823 | 100 | % | $ | 4,449 | 100 | % | |||||||||||
COSTS
AND EXPENSES:
|
|||||||||||||||||||||||||||
Operating
(excluding depreciation and
amortization)
|
710 | 43 | % | 679 | 45 | % | 2,089 | 43 | % | 1,957 | 44 | % | |||||||||||||||
Selling,
general and administrative
|
371 | 23 | % | 341 | 22 | % | 1,059 | 22 | % | 961 | 22 | % | |||||||||||||||
Depreciation
and amortization
|
332 | 20 | % | 334 | 22 | % | 981 | 21 | % | 999 | 23 | % | |||||||||||||||
Asset
impairment charges
|
-- | -- | 56 | 4 | % | -- | -- | 56 | 1 | % | |||||||||||||||||
Other
operating expenses, net
|
15 | 1 | % | 8 | -- | 51 | 1 | % | 13 | -- | |||||||||||||||||
1,428 | 87 | % | 1,418 | 93 | % | 4,180 | 87 | % | 3,986 | 90 | % | ||||||||||||||||
Income
from operations
|
208 | 13 | % | 107 | 7 | % | 643 | 13 | % | 463 | 10 | % | |||||||||||||||
OTHER
INCOME
(EXPENSES):
|
|||||||||||||||||||||||||||
Interest
expense, net
|
(478 | ) | (459 | ) | (1,417 | ) | (1,385 | ) | |||||||||||||||||||
Change
in value of derivatives
|
10 | (14 | ) | (1 | ) | (18 | ) | ||||||||||||||||||||
Other
expense, net
|
(5 | ) | -- | (7 | ) | (39 | ) | ||||||||||||||||||||
(473 | ) | (473 | ) | (1,425 | ) | (1,442 | ) | ||||||||||||||||||||
Loss
before income taxes
|
(265 | ) | (366 | ) | (782 | ) | (979 | ) | |||||||||||||||||||
INCOME
TAX EXPENSE
|
(57 | ) | (41 | ) | (174 | ) | (169 | ) | |||||||||||||||||||
Net
loss
|
$ | (322 | ) | $ | (407 | ) | $ | (956 | ) | $ | (1,148 | ) | |||||||||||||||
LOSS
PER COMMON SHARE
|
$ | (0.86 | ) | $ | (1.10 | ) | $ | (2.57 | ) | $ | (3.12 | ) | |||||||||||||||
Weighted
average common shares outstanding, basic and diluted
|
374,145,243 | 369,239,742 | 371,968,952 | 367,671,479 |
Three
Months Ended September 30,
|
||||||||||||||||||||||||
2008
|
2007
|
2008
over 2007
|
||||||||||||||||||||||
Revenues
|
%
of
Revenues
|
Revenues
|
%
of
Revenues
|
Change
|
%
Change
|
|||||||||||||||||||
Video
|
$ | 867 | 53 | % | $ | 845 | 55 | % | $ | 22 | 3 | % | ||||||||||||
High-speed
Internet
|
342 | 21 | % | 318 | 21 | % | 24 | 8 | % | |||||||||||||||
Telephone
|
144 | 9 | % | 94 | 6 | % | 50 | 53 | % | |||||||||||||||
Commercial
|
100 | 6 | % | 87 | 6 | % | 13 | 15 | % | |||||||||||||||
Advertising
sales
|
80 | 5 | % | 77 | 5 | % | 3 | 4 | % | |||||||||||||||
Other
|
103 | 6 | % | 104 | 7 | % | (1 | ) | (1 | %) | ||||||||||||||
$ | 1,636 | 100 | % | $ | 1,525 | 100 | % | $ | 111 | 7 | % |
Nine
Months Ended September 30,
|
||||||||||||||||||||||||
2008
|
2007
|
2008
over 2007
|
||||||||||||||||||||||
Revenues
|
%
of
Revenues
|
Revenues
|
%
of
Revenues
|
Change
|
%
Change
|
|||||||||||||||||||
Video
|
$ | 2,599 | 54 | % | $ | 2,542 | 57 | % | $ | 57 | 2 | % | ||||||||||||
High-speed
Internet
|
1,009 | 21 | % | 920 | 21 | % | 89 | 10 | % | |||||||||||||||
Telephone
|
399 | 8 | % | 236 | 5 | % | 163 | 69 | % | |||||||||||||||
Commercial
|
289 | 6 | % | 251 | 6 | % | 38 | 15 | % | |||||||||||||||
Advertising
sales
|
223 | 5 | % | 216 | 5 | % | 7 | 3 | % | |||||||||||||||
Other
|
304 | 6 | % | 284 | 6 | % | 20 | 7 | % | |||||||||||||||
$ | 4,823 | 100 | % | $ | 4,449 | 100 | % | $ | 374 | 8 | % |
Three
months ended
September
30, 2008
compared
to
three
months ended
September
30, 2007
Increase
/ (Decrease)
|
Nine
months ended
September
30, 2008
compared
to
nine
months ended
September
30, 2007
Increase
/ (Decrease)
|
|||||||
Incremental
video services and rate adjustments
|
$ | 24 | $ | 72 | ||||
Increase
in digital video customers
|
22 | 56 | ||||||
Decrease
in basic video customers
|
(19 | ) | (53 | ) | ||||
System
sales, net of acquisitions
|
(5 | ) | (18 | ) | ||||
$ | 22 | $ | 57 |
Three
months ended
September
30, 2008
compared
to
three
months ended
September
30, 2007
Increase
/ (Decrease)
|
Nine
months ended
September
30, 2008
compared
to
nine
months ended
September
30, 2007
Increase
/ (Decrease)
|
|||||||
Increase
in high-speed Internet customers
|
$ | 27 | $ | 88 | ||||
Rate
adjustments and service upgrades
|
(1 | ) | 5 | |||||
System
sales, net of acquisitions
|
(2 | ) | (4 | ) | ||||
$ | 24 | $ | 89 |
Three
months ended
September
30, 2008
compared
to
three
months ended
September
30, 2007
Increase
/ (Decrease)
|
Nine
months ended
September
30, 2008
compared
to
nine
months ended
September
30, 2007
Increase
/ (Decrease)
|
|||||||
Programming
costs
|
$ | 20 | $ | 63 | ||||
Labor
costs
|
8 | 38 | ||||||
Maintenance
costs
|
5 | 14 | ||||||
Regulatory
taxes
|
(3 | ) | 10 | |||||
Franchise
costs
|
2 | 7 | ||||||
Other,
net
|
4 | 15 | ||||||
System
sales, net of acquisitions
|
(5 | ) | (15 | ) | ||||
$ | 31 | $ | 132 |
Three
months ended
September
30, 2008
compared
to
three
months ended
September
30, 2007
Increase
/ (Decrease)
|
Nine
months ended
September
30, 2008
compared
to
nine
months ended
September
30, 2007
Increase
/ (Decrease)
|
|||||||
Marketing
costs
|
$ | 17 | $ | 33 | ||||
Employee
costs
|
11 | 33 | ||||||
Bad
debt and collection costs
|
1 | 13 | ||||||
Stock
compensation costs
|
3 | 9 | ||||||
Other,
net
|
(1 | ) | 13 | |||||
System
sales, net of acquisitions
|
(1 | ) | (3 | ) | ||||
$ | 30 | $ | 98 |
Three
months ended
September
30,
|
Nine
months ended
September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Interest
rate swaps
|
$ | (7 | ) | $ | (21 | ) | $ | (1 | ) | $ | (16 | ) | ||||
Embedded
derivatives from convertible senior notes
|
17 | 7 | -- | (2 | ) | |||||||||||
$ | 10 | $ | (14 | ) | $ | (1 | ) | $ | (18 | ) |
Three
months ended
September
30, 2008
compared
to
three
months ended
September
30, 2007
|
Nine
months ended
September
30, 2008
compared
to
nine
months ended
September
30, 2007
|
|||||||
(Increase)
decrease in loss on extinguishment of debt
|
$ | (4 | ) | $ | 35 | |||
Increase
in minority interest
|
-- | (1 | ) | |||||
Decrease
in gain on investments
|
(2 | ) | (2 | ) | ||||
Other,
net
|
1 | -- | ||||||
$ | (5 | ) | $ | 32 |
•
|
issuing
equity that would significantly dilute existing
shareholders;
|
|
•
|
issuing
convertible debt or some other securities that may have structural or
other priority over our existing notes and may also, in the case of
convertible debt, significantly dilute Charter’s existing
shareholders;
|
|
•
|
further
reducing our expenses and capital expenditures, which may impair our
ability to increase revenue and grow operating cash
flows;
|
|
•
|
selling
assets; or
|
|
•
|
requesting
waivers or amendments with respect to our credit facilities, which may not
be available on acceptable terms, and cannot be
assured.
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Customer
premise equipment (a)
|
$ | 157 | $ | 139 | $ | 480 | $ | 428 | ||||||||
Scalable
infrastructure (b)
|
52 | 64 | 185 | 164 | ||||||||||||
Line
extensions (c)
|
19 | 27 | 63 | 76 | ||||||||||||
Upgrade/Rebuild
(d)
|
8 | 11 | 37 | 35 | ||||||||||||
Support
capital (e)
|
52 | 70 | 173 | 187 | ||||||||||||
Total
capital expenditures
|
$ | 288 | $ | 311 | $ | 938 | $ | 890 |
(a)
|
Customer
premise equipment includes costs incurred at the customer residence to
secure new customers, revenue units and additional bandwidth
revenues. It also includes customer installation costs in
accordance with SFAS No. 51, Financial Reporting by Cable
Television Companies, and customer premise equipment (e.g., set-top
boxes and cable modems, etc.).
|
(b)
|
Scalable
infrastructure includes costs, not related to customer premise equipment
or our network, to secure growth of new customers, revenue units and
additional bandwidth revenues or provide service enhancements (e.g.,
headend equipment).
|
(c)
|
Line
extensions include network costs associated with entering new service
areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment,
make-ready and design engineering).
|
(d)
|
Upgrade/rebuild
includes costs to modify or replace existing fiber/coaxial cable networks,
including betterments.
|
(e)
|
Support
capital includes costs associated with the replacement or enhancement of
non-network assets due to technological and physical obsolescence (e.g.,
non-network equipment, land, buildings and
vehicles).
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
Total
|
Fair
Value at September 30, 2008
|
||||||||||||||||||||||||||||||||||||||||||||||
Debt:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed
Rate
|
$ |
--
|
$ |
168
|
$ |
1,882
|
$ |
281
|
$ |
1,654
|
$ |
1,414
|
$ |
7,837
|
$ |
13,236
|
$
|
9,200
|
|
|||||||||||||||||||||||||||||||||||
Average
Interest Rate
|
--
|
10.09%
|
10.26%
|
11.25%
|
7.75%
|
9.40%
|
10.93%
|
10.27%
|
||||||||||||||||||||||||||||||||||||||||||||||
Variable
Rate
|
$
|
18
|
$
|
70
|
$
|
70
|
$
|
70
|
$
|
70
|
$
|
635
|
$
|
6,930
|
$
|
7,863
|
$
|
6,333
|
||||||||||||||||||||||||||||||||||||
Average Interest
Rate
|
5.84%
|
5.79%
|
5.41%
|
6.54%
|
6.70%
|
6.59%
|
6.61%
|
6.59%
|
||||||||||||||||||||||||||||||||||||||||||||||
Interest
Rate Instruments:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable
to Fixed Swaps
|
$
|
--
|
$
|
--
|
$
|
500
|
$
|
300
|
$
|
2,500
|
$
|
1,000
|
$
|
--
|
$
|
4,300
|
$
|
(170)
|
||||||||||||||||||||||||||||||||||||
Average Pay
Rate
|
--
|
--
|
7.01%
|
7.18%
|
7.14%
|
7.14%
|
--
|
7.13%
|
||||||||||||||||||||||||||||||||||||||||||||||
Average Receive
Rate
|
--
|
--
|
5.31%
|
6.25%
|
6.77%
|
6.69%
|
--
|
6.54%
|
Legal
Proceedings.
|
Item
1A.
|
Risk
Factors.
|
|
·
|
require
us to dedicate a significant portion of our cash flow from operating
activities to make payments on our debt, reducing our funds available for
working capital, capital expenditures, and other general corporate
expenses;
|
|
·
|
limit
our flexibility in planning for, or reacting to, changes in our business,
the cable and telecommunications industries, and the economy at
large;
|
|
·
|
place
us at a disadvantage compared to our competitors that have proportionately
less debt;
|
|
·
|
make
us vulnerable to interest rate increases, because net of hedging
transactions approximately 17% of our borrowings are, and will continue to
be, subject to variable rates of
interest;
|
|
·
|
expose
us to increased interest expense to the extent we refinance existing debt
with higher cost debt;
|
|
·
|
adversely
affect our relationship with customers and
suppliers;
|
|
·
|
limit
our ability to borrow additional funds in the future, or to access
financing at the necessary level of the capital structure, due to
applicable financial and restrictive covenants in our
debt;
|
|
·
|
make
it more difficult for us to obtain financing given the current volatility
and disruption in the capital and credit markets and the deterioration of
general economic conditions;
|
|
·
|
make
it more difficult for us to satisfy our obligations to the holders of our
notes and for our subsidiaries to satisfy their obligations to the lenders
under their credit facilities and to their noteholders;
and
|
|
·
|
limit
future increases in the value, or cause a decline in the value of our
equity, which could limit our ability to raise additional capital by
issuing equity.
|
·
|
the
impact of competition from other distributors, including incumbent
telephone companies, direct broadcast satellite operators, wireless
broadband providers and DSL
providers;
|
·
|
difficulties
in growing, further introducing, and operating our telephone services,
while adequately meeting customer expectations for the reliability of
voice services;
|
·
|
our
ability to adequately meet demand for installations and customer
service;
|
·
|
our
ability to sustain and grow revenues and cash flows from operating
activities by offering video, high-speed Internet, telephone and other
services, and to maintain and grow our customer base, particularly in the
face of increasingly aggressive
competition;
|
·
|
our
ability to obtain programming at reasonable prices or to adequately raise
prices to offset the effects of higher programming
costs;
|
·
|
general
business conditions, economic uncertainty or downturn, including the
recent volatility and disruption in the capital and credit markets and the
significant downturn in the housing sector and overall economy;
and
|
·
|
the
effects of governmental regulation on our
business.
|
·
|
the
sum of its debts, including contingent liabilities, was greater than the
fair saleable value of all its
assets;
|
· |
the
present fair saleable value of its assets was less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature;
or
|
·
|
it
could not pay its debts as they became
due.
|
|
·
|
the
lenders under Charter Operating’s credit facilities whose interests are
secured by substantially all of our operating assets, and all holders of
other debt of our subsidiaries, will have the right to be paid in full
before us from any of our subsidiaries’ assets;
and
|
|
·
|
the
holders of preferred membership interests in our subsidiary, CC VIII,
would have a claim on a portion of its assets that may reduce the amounts
available for repayment to holders of our outstanding
notes.
|
Item
6.
|
Exhibits.
|
Dated: November
6, 2008
|
By:
/s/ Kevin D.
Howard
|
|
Name:
|
Kevin
D. Howard
|
|
Title:
|
Vice
President, Controller and
|
|
Chief
Accounting Officer
|
Exhibit
Number
|
Description
of Document
|
||
10.1+
|
Amended
and Restated Employment Agreement between Neil Smit and Charter
Communications, Inc., dated as of July 1, 2008 (incorporated by reference
to Exhibit 10.1 to the current report on Form 8-K of Charter
Communications, Inc. filed on September 30, 2008 (File
No. 000-27927)).
|
||
12.1*
|
Computation
of Ratio of Earnings to Fixed Charges.
|
||
31.1*
|
Certificate
of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under
the Securities Exchange Act of 1934.
|
||
31.2*
|
Certificate
of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under
the Securities Exchange Act of 1934.
|
||
32.1*
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
|
||
32.2*
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
|